GMAT Question of the Day - Daily to your Mailbox; hard ones only

 It is currently 07 Dec 2019, 02:28

### GMAT Club Daily Prep

#### Thank you for using the timer - this advanced tool can estimate your performance and suggest more practice questions. We have subscribed you to Daily Prep Questions via email.

Customized
for You

we will pick new questions that match your level based on your Timer History

Track

every week, we’ll send you an estimated GMAT score based on your performance

Practice
Pays

we will pick new questions that match your level based on your Timer History

# Companies that dominate an industry usually do so by developing a comp

Author Message
TAGS:

### Hide Tags

Senior Manager
Joined: 02 Mar 2017
Posts: 252
Location: India
Concentration: Finance, Marketing
Companies that dominate an industry usually do so by developing a comp  [#permalink]

### Show Tags

22 Apr 2017, 01:59
1
3
15
00:00

Difficulty:

95% (hard)

Question Stats:

31% (02:53) correct 69% (03:00) wrong based on 357 sessions

### HideShow timer Statistics

Companies that dominate an industry usually do so by developing a competitive advantage, often control of a unique resource or a superior technology, that allows them to manufacture products at a lower cost than their competitors can. Nondominant companies that seek to increase their share of the market generally must endure drastically lower profit margins as they win customers away from the dominant companies by matching their prices. Companies that increase their market share in this way and do not change their disadvantage in production costs relative to those of the dominant companies will, therefore, eventually lose their recently won market share as prices return to normal levels.

Which of the following is an assumption upon which the conclusion of the argument depends?

A. Few companies lacking competitive advantages in costs of production that have increased their market share will sustain price margins lower than those of firms with production cost advantages.

B. Dominant companies generally cannot maintain their competitive advantage over long periods of time unless they acquire additional unique resources or develop improved technology.

C. Nondominant companies can improve their competitive positions by developing unique resources or technological innovations similar to those of dominant companies.

D. A dominant company with a competitive advantage generally will not lower its prices to undercut those of a firm that lacks competitive advantages in production costs.

E. Acquiring unique resources or developing superior technology is a difficult undertaking that requires substantial investment on the part of a company seeking to gain a competitive advantage in production costs.
Senior Manager
Joined: 02 Mar 2017
Posts: 252
Location: India
Concentration: Finance, Marketing
Re: Companies that dominate an industry usually do so by developing a comp  [#permalink]

### Show Tags

25 Apr 2017, 03:49
1
BS55 wrote:
VyshakhR1995 wrote:
Ashy Boy wrote:
Why is it not E? whats the explanation for A?

The conclusion is that companies without a competitive advantage will not
be able to retain an increase in market share

They will lose the market share
as they raise their prices back to original levels.

What if they decide not to increase the prices.... The author assumes that they
aren’t willing to continue with lower profit margins...

Companies that can develop competitive advantages are irrelevant to
the conclusion....Hence E is wrong..
Hope its clear

Hi
Thank you Vyshakh. Above explanation was helpful but as per my understanding in order for the conclusion to hold true , shouldn't the assumption state otherwise . See below.

in costs of production that have
increased their market share will NOT sustain
price margins lower than those of firms with

Thanks

Hey BS55,

For the argument to hold MOST companies should NOT sustain price margins.
If they Do sustain price margin-----Price will not raise back to original level
A states only few companies sustain---->MOST companies will not
Hope its clear
Manager
Joined: 27 Oct 2017
Posts: 72
Re: Companies that dominate an industry usually do so by developing a comp  [#permalink]

### Show Tags

05 Jan 2019, 14:25
1
rish2708 wrote:
VyshakhR1995 wrote:
Companies that dominate an industry usually do so
by developing a competitive advantage, often control
of a unique resource or a superior technology, that
allows them to manufacture products at a lower cost
than their competitors can. Nondominant companies
that seek to increase their share of the market
generally must endure drastically lower profit margins
as they win customers away from the dominant
companies by matching their prices. Companies that
increase their market share in this way and do not
change their disadvantage in production costs relative
to those of the dominant companies will, therefore,
eventually lose their recently won market share as

Which of the following is an assumption upon which
the conclusion of the argument depends?

in costs of production that have
increased their market share will sustain
price margins lower than those of firms with

Dominant companies generally cannot maintain
periods of time unless they acquire additional
unique resources or develop improved
technology.

Nondominant companies can improve their
competitive positions by developing unique
resources or technological innovations
similar to those of dominant companies.

A dominant company with a competitive
advantage generally will not lower its prices
to undercut those of a firm that lacks competitive

Acquiring unique resources or developing
superior technology is a difficult undertaking
that requires substantial investment on the
part of a company seeking to gain a competitive

Why not option D ?

It says that the competitive once will not keep the costs lower. If it does , doesn't the whole argument of prices falling back to normal levels will fail?

Regards
Rishav

Posted from my mobile device

Hi Rishav,

Even I did the same mistake, I opted for D first. But later realized that argument is discussing about the noncompetitive company which has already used that strategy and gained market share. It will not be able to retain the same, if price increase. so the only answer choice goes with that is A.

I hope that helps.

Regards
Nidhi
Intern
Status: 800 and more!
Joined: 11 Apr 2017
Posts: 10
Location: India
Concentration: Strategy, Marketing
GMAT 1: 620 Q47 V29
GPA: 3.75
Re: Companies that dominate an industry usually do so by developing a comp  [#permalink]

### Show Tags

24 Apr 2017, 03:42
Why is it not E? whats the explanation for A?
Senior Manager
Joined: 02 Mar 2017
Posts: 252
Location: India
Concentration: Finance, Marketing
Re: Companies that dominate an industry usually do so by developing a comp  [#permalink]

### Show Tags

24 Apr 2017, 04:08
Ashy Boy wrote:
Why is it not E? whats the explanation for A?

The conclusion is that companies without a competitive advantage will not
be able to retain an increase in market share

They will lose the market share
as they raise their prices back to original levels.

What if they decide not to increase the prices.... The author assumes that they
aren’t willing to continue with lower profit margins...

Companies that can develop competitive advantages are irrelevant to
the conclusion....Hence E is wrong..
Hope its clear
Intern
Status: 800 and more!
Joined: 11 Apr 2017
Posts: 10
Location: India
Concentration: Strategy, Marketing
GMAT 1: 620 Q47 V29
GPA: 3.75
Re: Companies that dominate an industry usually do so by developing a comp  [#permalink]

### Show Tags

24 Apr 2017, 04:58
VyshakhR1995 wrote:
Ashy Boy wrote:
Why is it not E? whats the explanation for A?

The conclusion is that companies without a competitive advantage will not
be able to retain an increase in market share

They will lose the market share
as they raise their prices back to original levels.

What if they decide not to increase the prices.... The author assumes that they
aren’t willing to continue with lower profit margins...

Companies that can develop competitive advantages are irrelevant to
the conclusion....Hence E is wrong..
Hope its clear

yes thank you so much. I thought in some other way. I get it now the point is clear. Thanks once again.
Intern
Joined: 20 Jan 2016
Posts: 19
GMAT 1: 600 Q49 V23
GMAT 2: 660 Q50 V30
Re: Companies that dominate an industry usually do so by developing a comp  [#permalink]

### Show Tags

25 Apr 2017, 03:09
VyshakhR1995 wrote:
Ashy Boy wrote:
Why is it not E? whats the explanation for A?

The conclusion is that companies without a competitive advantage will not
be able to retain an increase in market share

They will lose the market share
as they raise their prices back to original levels.

What if they decide not to increase the prices.... The author assumes that they
aren’t willing to continue with lower profit margins...

Companies that can develop competitive advantages are irrelevant to
the conclusion....Hence E is wrong..
Hope its clear

Hi
Thank you Vyshakh. Above explanation was helpful but as per my understanding in order for the conclusion to hold true , shouldn't the assumption state otherwise . See below.

in costs of production that have
increased their market share will NOT sustain
price margins lower than those of firms with

Thanks
Intern
Joined: 20 Jan 2016
Posts: 19
GMAT 1: 600 Q49 V23
GMAT 2: 660 Q50 V30
Re: Companies that dominate an industry usually do so by developing a comp  [#permalink]

### Show Tags

25 Apr 2017, 04:27
Hey BS55,

For the argument to hold MOST companies should NOT sustain price margins.
If they Do sustain price margin-----Price will not raise back to original level
A states only few companies sustain---->MOST companies will not
Hope its clear[/quote]

This is what i was missing.Thanks Vyshakh

Regards
Manager
Joined: 12 Jul 2017
Posts: 216
Schools: NUS '22 (S)
GMAT 1: 570 Q43 V26
GMAT 2: 660 Q48 V34
Re: Companies that dominate an industry usually do so by developing a comp  [#permalink]

### Show Tags

30 Dec 2018, 21:59
VyshakhR1995 wrote:
Companies that dominate an industry usually do so
by developing a competitive advantage, often control
of a unique resource or a superior technology, that
allows them to manufacture products at a lower cost
than their competitors can. Nondominant companies
that seek to increase their share of the market
generally must endure drastically lower profit margins
as they win customers away from the dominant
companies by matching their prices. Companies that
increase their market share in this way and do not
change their disadvantage in production costs relative
to those of the dominant companies will, therefore,
eventually lose their recently won market share as

Which of the following is an assumption upon which
the conclusion of the argument depends?

in costs of production that have
increased their market share will sustain
price margins lower than those of firms with

Dominant companies generally cannot maintain
periods of time unless they acquire additional
unique resources or develop improved
technology.

Nondominant companies can improve their
competitive positions by developing unique
resources or technological innovations
similar to those of dominant companies.

A dominant company with a competitive
advantage generally will not lower its prices
to undercut those of a firm that lacks competitive

Acquiring unique resources or developing
superior technology is a difficult undertaking
that requires substantial investment on the
part of a company seeking to gain a competitive

Why not option D ?

It says that the competitive once will not keep the costs lower. If it does , doesn't the whole argument of prices falling back to normal levels will fail?

Regards
Rishav

Posted from my mobile device
Manager
Joined: 12 Jul 2017
Posts: 216
Schools: NUS '22 (S)
GMAT 1: 570 Q43 V26
GMAT 2: 660 Q48 V34
Re: Companies that dominate an industry usually do so by developing a comp  [#permalink]

### Show Tags

05 Jan 2019, 23:25
arorni wrote:
rish2708 wrote:
VyshakhR1995 wrote:
Companies that dominate an industry usually do so
by developing a competitive advantage, often control
of a unique resource or a superior technology, that
allows them to manufacture products at a lower cost
than their competitors can. Nondominant companies
that seek to increase their share of the market
generally must endure drastically lower profit margins
as they win customers away from the dominant
companies by matching their prices. Companies that
increase their market share in this way and do not
change their disadvantage in production costs relative
to those of the dominant companies will, therefore,
eventually lose their recently won market share as

Which of the following is an assumption upon which
the conclusion of the argument depends?

in costs of production that have
increased their market share will sustain
price margins lower than those of firms with

Dominant companies generally cannot maintain
periods of time unless they acquire additional
unique resources or develop improved
technology.

Nondominant companies can improve their
competitive positions by developing unique
resources or technological innovations
similar to those of dominant companies.

A dominant company with a competitive
advantage generally will not lower its prices
to undercut those of a firm that lacks competitive

Acquiring unique resources or developing
superior technology is a difficult undertaking
that requires substantial investment on the
part of a company seeking to gain a competitive

Why not option D ?

It says that the competitive once will not keep the costs lower. If it does , doesn't the whole argument of prices falling back to normal levels will fail?

Regards
Rishav

Posted from my mobile device

Hi Rishav,

Even I did the same mistake, I opted for D first. But later realized that argument is discussing about the noncompetitive company which has already used that strategy and gained market share. It will not be able to retain the same, if price increase. so the only answer choice goes with that is A.

I hope that helps.

Regards
Nidhi

Thanks Nidhi. Your opinion coupled with my introspection helped me crack it.

Annotations:
P => Profit
R => Revenue
C => Costs

DC => Dominating companies
NDC => Non Dominating Companies.

As per my understanding now,
Pdc = Rdc - Cdc
Pndc = Rndc - Cndc

We know that Cdc < Cndc and Rdc must be equal to Rndc so that Ndc increase their market share

Now, statement says, if they( NDC) do not decrease their operating costs/manufacture costs their shares shall decrease when prices return to market levels.. meaning people won't buy

Now, in what scenario they shall sustain:
What if they keep up with low revenues ( sustain low profits i.e maintaining the equation Pndc < Pdc) then certainly their prices will be low.

And hence A shall be the answer. I get it .

And why Option D is wrong, as you said the lower price endurance has already been done by them. And the conclusions says that they shall not endure when the prices return to normal levels meaning back to earlier levels ( that is high)

So, yeah we can't take the possibility that the DC would lower its prices further.

Thanks for this small hint, as it helped me solve the problem and check where I was going wrong.

Regards,
Rishav
Intern
Joined: 27 Oct 2018
Posts: 45
GMAT 1: 750 Q49 V42
GPA: 3.9
Re: Companies that dominate an industry usually do so by developing a comp  [#permalink]

### Show Tags

21 Feb 2019, 02:46
A is the best answer. The conclusion here is that companies that do not have production advantages may be able to gain market share by accepting lower profit margins (matching their prices with those of the companies that do have production advantages) but they will lose that market share when they raise the prices to normal levels. This relies on the assumption that they will eventually raise their prices. A, very clearly states that few of the companies that lack production advantages can afford to function with lower profit margins, over time.
Intern
Joined: 17 Dec 2018
Posts: 4
Re: Companies that dominate an industry usually do so by developing a comp  [#permalink]

### Show Tags

21 Apr 2019, 07:21
Re: Companies that dominate an industry usually do so by developing a comp   [#permalink] 21 Apr 2019, 07:21
Display posts from previous: Sort by